Custom, Excise & Service Tax Tribunal
Foto Flash vs Bangalore Service Tax- I on 29 March, 2022
1 Service Tax appeal No.26073 of 2013
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
BANGALORE
REGIONAL BENCH - COURT NO. 1
Service Tax Appeal No. 26073 of 2013
[Arising out of Order-in-Appeal No. 352/2012 dated
27/12/2012 passed by Commissioner of Central
Excise(Appeals-II), Bangalore]
Foto Flash
21, P. Kalinga Rao Road, Mission Road
BANGALORE Appellant(s)
KARNATAKA
560027
VERSUS
C.C.E & C.S.T.-BANGALORE
SERVICE TAX- I
1ST TO 5TH FLOOR,
TTMC BUILDING,above BMTC BUS Respondent(s)
STAND,DOMLUR
BANGALORE,
KARNATAKA
560071
Appearance:
Shri Cheriyan Punnoose, Advocate for the Appellant
Smt. C.V. Savitha, Superintendent(AR) for the Respondent
CORAM:
HON'BLE MR. RAMESH NAIR, JUDICIAL MEMBER
HON'BLE MR. P. ANJANI KUMAR, TECHNICAL MEMBER
Final Order No: 20143 / 2022
Date of Hearing: 23/03/2022
Date of Decision: 29/03/2022
Per : RAMESH NAIR
The issue involved is that in respect of photography service;
whether the appellant is entitled for the exemption Notification
No.12/2003-ST dt. 20/06/2003 in respect of goods such as photography
paper and chemicals used for providing photography service.
2 Service Tax appeal No.26073 of 2013
2. Shri Cheriyan Punnoose, learned counsel appearing on behalf
of the appellant at the outset submits that this issue is no longer under
dispute as in the appellant's own case; this Tribunal has decided this
issue in favour of the appellant in judgment reported at Shilpa Colour
Lab Vs. CCE, Calicut [2007(5) STR 423 (Tri. Bang.)] wherein the
appellant is one of the parties. He submits that this judgment has been
upheld by the Hon'ble Supreme Court reported at 2009(14) STR J163
(SC). He also relied upon various other judgments including the
judgment of Jain Brothers Vs. CCE, Bhopal [2009(13) STR 633 (Tri.
Del.)] which was upheld by the Hon'ble Supreme Court reported at.
2012(28) STR J62 (SC). He also placed reliance on the following
judgments:-
i. Savithri Digital lab Vs. CCE, Coimbatore [2009(16)
STR 462 (Tri. Chennai) - Affirmed by the Hon'ble
Supreme Court reported at Commissioner Vs. Savithri
Digital Lab [2011(24) STR J25(SC)].
ii. Adlabs Vs. CCE, Bangalore [2006(2) STR 121 (Tri.
Bang.)] - Department appeal dismissed by Hon'ble
Supreme Court reported at Commissioner Vs. Adlabs
[2011(23) STR J27 (SC)]
iii. CCE&ST, Mangalore Vs. Classic Color Lab [2018(8)
TMI 1113 - CESTAT, BANGALORE]
iv. CCE, Indore Vs. Photo Fast Colour Lab [2015(12) TMI
19 - CESTAT, NEW DELHI
v. Agarwal Colour Advance Photo System Vs. CCE&ors.
[2020(4) TMI 799 - Madhya Pradesh High Court]
vi. Waidhan Engineering & Industries Pvt. Ltd. Vs. CCE
[2020(4) TMI 867 - Madhya Pradesh High Court]
He submits that in view of the above settled position, the
present appeal is deserved to be allowed.
3 Service Tax appeal No.26073 of 2013
3. Smt. C.V. Savitha, learned Superintendent(AR) appearing on
behalf of the Revenue reiterates the findings of the impugned order.
4.1. We have carefully considered the submissions made by both
sides and perused the records. We find that the limited issue to be
decided is that in case of photography service, whether the value of the
goods such as photography paper and chemicals used for providing
photography service is required to be included in the gross value for the
purpose of charging service tax or the appellant is entitled for abatement
in respect of the cost of the said goods in terms of Notification
No.12/2003-ST dt. 20/06/2003. We find that the very same issue in
the appellant's own case only for the different period has been
considered by this Tribunal in the case of Shilpa Colour Lab (supra)
wherein the appellant was also one of the parties, which is evident from
paragraph 4 of the said decision of the Tribunal, which is reproduced
below:-
4. S/Shri G. Shiva Dass, the learned Advocate
appeared for M/s. Foto Flash. He made the following
submissions:-
(i) The appellants have maintained records for
consumption of the raw materials used/provided by
them while rendering photography services.
(ii) An amount of Rs. 41,69,972/- has been
demanded on the ground that the value of the
materials consumed are not deductible.
(iii) Section 67 contemplates levy of Service Tax only
on the amount chargeable by the service provider for
the service rendered by him. It does not provide for
4 Service Tax appeal No.26073 of 2013
levy of Service Tax on the material portion provided
during the course of rendering of the service.
(iv) Section 67 makes it clear by providing
specifically that the cost of the unexposed
photographic films, un-recorded magnetic tapes or
such other storage devices sold to the clients during
the course of providing the services, is not liable to be
included for payment of Service Tax.
(v) Notification 12/2003-ST dated 20-6-2003 has
been issued exempting from payment of Service Tax
on the value of the goods and materials sold by the
service provider during the course of providing taxable
service.
(vi) The CBEC Circular dated 7-4-2004 issued in the
case of Punjab Colour Lab Association, clarified that
the service provider was entitled to claim exemption
in respect of the input material consumed/sold to the
service recipients. This circular, in favour of the
assessee, is retrospective in application as held by the
Hon'ble Calcutta High Court in the case of Birla Jute
and Industries Ltd. v. ACCE - 1992 (57) E.L.T. 674
(Cal.)
(vii) The decision of this Bench in Adlabs case (cited
supra), is in favour of the appellant.
(viii) The Apex Court, in the case of BSNL (cited
supra) has held that once it is possible to bifurcate in
any transaction the sale or the service portion, the
respective Tax is to be levied on the respective
portions only.
(ix) In the following decisions, it has been held that
in the process of consumption of various chemicals,
there is indeed a transfer of property from the service
provider to the customer.
(a) Commissioner of Sales Tax v. Matushree Textile
Ltd. - 2003 (132) STC 539 (Bombay)
(b) Live Tone v. State of Tripura and Others - 2001
(122) STC 0115 (Gauhati)
(c) Xerox Modicorp Ltd. v. State of Karnataka - 2005
(7) SCC 380
5 Service Tax appeal No.26073 of 2013
(x) The circular issued in March 2006 denying the
benefit conferred by earlier Circular can be having
only prospective effect.
(xi) The demand of Rs. 31,04,826/- is on account of
the Service Tax on the services rendered by the
appellant to other photographic studios. In terms of
Section 65(105)(zb) of the Finance Act 1944, taxable
service in relation to photography is the service
provided to the customer by a photographic studio or
agency in relation to photography. In the present
case, the photographic service is not rendered by the
appellant to a customer but to other photographic
studios. Therefore, the demand is not sustainable. In
the present case, the appellants operate as a sub-
contractor to other photographic studios, which
provide unprocessed films and the activity is in the
same service category. The Board has issued a
Circular dated 27-2-2001 clarifying that collection
centres, which get the processing done by the lab are
not liable to pay service tax, as they are not rendering
any service to the customer.
(xii) The fact that the other photographic studios may
or may not have paid the Service Tax can be no
ground to charge the appellants with Service Tax,
when they are not liable to pay Service Tax in law. In
any case, the appellants have, vide their letters dated
20-2-2004 and 13-5-2004, provided details based on
the information acquired by them of the studios and
their Service Tax Registration Nos.
(xiii) The Show Cause Notice has been issued on 9-8-
2004 for demand of Service Tax of Rs. 31,04,826/- for
the period from July 2001 to September 2002. The
entire demand is beyond the normal period of one
year. As the appellants provided all the details
regarding the main contractor from whom they
undertake the act of processing of the photographs,
they had not suppressed any facts. When the
appellants have disclosed all primary facts and have
also filed their monthly returns regularly, invocation
of longer period is not sustainable. In this regard, they
rely on the decision rendered in the case of Maruti
Udyog Ltd. v. CCE, Delhi - 2002 (147) E.L.T. 881 (Tri.-
Del.).
6 Service Tax appeal No.26073 of 2013
(xiv) In a recent judgment, the Hon'ble High Court of
Madras has held in the case of The Commissioner of
Income Tax, Madurai v. M/s. Jamal Photo Industries
(I) Pvt. Ltd., 2006-TIOL-141-HC-Mad-IT that the
activity of film processing and printing photographs
from negatives would amount to manufacture. Once it
is held so, then the entire activity would not attract
Service Tax.
4.2. In the said judgment, the Tribunal has passed the following
order:-
8. We have gone through the records of the case carefully. The
main issue in all these appeals relates to the valuation of
Photography Services. Section 65 (zb) of the Finance Act defines
Photography Services as "Services rendered to a customer, by a
photography studio or agency in relation to photography, in any
manner." Section 68(78) and (79) of the Finance Act are
reproduced below:-
"(78) "photography" includes still photography, motion picture
photography, laser photography, aerial photography or
fluorescent photography;
(79) "photography studio or agency" means any professional
photographer or a commercial concern engaged in the business of
rendering service relating to photography."
8.1 Although the fact that the appellants render photography
services which comes within the ambit of Finance Act, 1994 for
levy of Service Tax is not in doubt, Shri Saju K. Abraham, the
learned Chartered Accountant, appearing for M/s. Surabhi Colour
Lab, urged the point that his client M/s. Surabhi Color Lab
undertakes printing photograph of various sizes and this should
not be considered as rendering any service for the reason that the
material cost in printing photograph is much more than the labour
cost. He has also cited quite a few decisions. In the light of the
definition of Photography services in Section 65(zb), we are not
inclined to accept the above contention of Shri Saju K. Abraham.
In processing and printing of photos, there is definitely an element
of service and it is difficult to accept the contention that the
activity is only that of sale. In fact, there is a mixture of both
service and sale. We shall be dealing with the other issues holding
that all the appellants are rendering photography services.
8.2 The question is how to value the services rendered by the
appellants. Section 67 of the Finance Act deals with Valuation of
taxable services for charging Service Tax. It is stated that "for the
purpose of this Chapter, the value of any taxable service shall be
7 Service Tax appeal No.26073 of 2013
the gross amount charged by the service provider for such service,
rendered by him." A careful reading of the above mentioned
provision reveals that the amount charged by the service provider
for such service is normally taken for purposes of calculating tax.
The service provider may charge certain amounts for purposes
other than the service rendered by him. In such a case, those
charges would not form part of the value of taxable service.
Hence, one should not assume that any amount charged by the
service provider would be liable for Service Tax. There are two
explanations under Section 67. Explanation 1 is for the sake of
removal of doubts with regard to valuation for certain specific
services. It actually provides clarification with regard to inclusion
of certain charges and also exclusions. With regard to
Photography services, it is stated that the value does not include
"the cost of unexposed photography film, unrecorded magnetic
tape or such other storage devices, if any, sold to the client during
the course of providing the service". What we understand from
the above is that the cost of the items mentioned cannot be added
to the value of taxable services when they are sold to a client
during the course of providing the service. In case it is included,
that would amount to levy of Sales Tax. Sales Tax is actually not
a Union subject. The Centre is not competent to levy Sales Tax as
per the Constitution of India. Therefore, when an item is sold by
a service provider, Revenue cannot demand service tax. The CBEC
has issued certain clarifications and there is a Notification also. Let
us examine them:-
8.3 The following Notification 12/2003-ST dated 20-6-2003 is
very relevant for the present appeals and hence, the same is
reproduced below:
Valuation (Service Tax) -- Goods and materials
sold by service provider to recipient of service --
Value thereof, exempted
In exercise of the powers conferred by section 93 of
the Finance Act, 1994 (32 of 1994), the Central
Government, being satisfied that it is necessary in the public
interest so to do, hereby exempts so much of the value of
all the taxable services, as is equal to the value of goods
and materials sold by the service provider to the recipient
of service, from the service tax leviable thereon under
section (66) of the said Act, subject to condition that there
is documentary proof specifically indicating the value of the
said goods and materials.
2. This notification shall come into force on the 1st day
of July, 2003. [Notification No. 12/2003-S.T, dated 20-6-
2003]
In terms of the above Notification, the value of the goods
and materials sold by the Service provider to the recipient
8 Service Tax appeal No.26073 of 2013
of the service is to be excluded for the purpose of calculating
the Service Tax. However, the Notification is subject to the
following condition:-
There should be a documentary proof specifically indicating
the value of the said goods and materials. In the absence of
documentary proof, a service provider may claim deduction
in an arbitrary manner. In order to avoid that the above
condition has been stipulated, it should be borne in mind
that there is no requirement that in each and every invoice,
such values of goods and materials should be indicated.
8.4 The Punjab Color Lab. Association, Jalandar, sent a
representation to the Finance Minister with regard to exempting
the materials consumed by the service providers while providing
the taxable service. In response to their representation, the CBEC
issued a clarification dated 7-4-2004. That clarification is
reproduced below:-
"I am directed to refer to your representation forwarded to
Finance Minister vide letter dated 11-3-2003 and state that
in terms of the notification 12/2003-ST dated 20-6-2003,
the exemption in respect of input material consumed/sold
by the service provider to the service recipient while
providing the taxable service is available. However, the
exemption is available only if the service provider maintains
the records showing the material consumed/sold while
providing the taxable service. The value of such material
should also be indicated on the bill/invoice issued in respect
of the taxable service provided."
Thus, the clarification issued by the CBEC made it abundantly clear
that the value of the goods consumed while rendering service
need not be included in the value of the taxable service.
8.5 This Bench had occasion to deal with this issue when the
benefit of deduction was denied on the ground that the value of
the goods consumed is not indicated in the invoice in the case of
Adlabs v. CCE, Bangalore, - 2006 (2) S.T.R. 121 (Tri.-Bang.). In
the above case, this Bench, made the following observations:-
"3. On a careful consideration, we notice that the
Commissioner was not justified in taking the view, in contra
to the Board's letter and the Notification. The appellants
have maintained the records of the inputs used in the
photography, nowhere it is stated in the Circular and
Notification that the inputs used in the photography should
be mentioned in the invoices/bills issued to the customers.
The reasoning given by the Commissioner is not sustainable.
In view of the clarification given in the Board's letter and the
Notification itself the denial of benefit by the lower
authorities is not justified and not correct in law. The
9 Service Tax appeal No.26073 of 2013
appellants are eligible for the benefit of deduction in terms
of the Board's circular and the Notification. The order passed
by the impugned authorities is not correct in law as the
same is contra to the Board's letter and the Notification. The
impugned order is set aside by allowing the appeal."
Though the above decision is in favour of the appellants, the
Principal Bench, Delhi took a contrary view in M/s. Laxmi Color (P)
Ltd. v. CCE, Jaipur-II. While taking a contrary view, CESTAT, Delhi
relied on the following decisions:-
(i) C.K.-Jidheesh v. UOI - 2006 (1) S.T.R. 3 (S.C.) =
2005 (71) RLT 505 (S.C.)
(ii) Rainbow Colour Lab. & Anr. v. State of MP. & Ors. -
2001 (134) E.L.T. 332 (S.C.) = 2000 (2) SCC 385.
8.6 In order to appreciate the issues, we shall examine the
decision in the case of Rainbow Colour Lab. The Rainbow case
relates to Sales Tax. The Madhya Pradesh Sales tax authorities
took a view that the job done by photographers amounted to
"works contract". They took advantage of the 46th Amendment of
the Constitution and the consequent amendment to the definition
of 'sale' in section 2(n) of the local Sales Tax Act. The authorities
decided that the turnover of the photographers would be exigible
to the levy of Sales Tax. This issue was examined by the Hon'ble
Apex Court and it was held that the job rendered by a
photographer in taking photographs, developing and printing films
does not amount to 'works contract' and not exigible to the levy
of sales tax. In other words, the work done by the photographer
is only in the nature of a service contract and not involving any
sale of goods.
8.7 In the C.K. Jidheesh case, the Apex Court followed the
decision of the Rainbow Colour Lab case. In the Jidheesh case, the
petitioner claimed that the UOI must bifurcate the gross receipts
of processing of photographs into the portion attributable to goods
and that attributable to services. Then, it must tax only that
portion of the receipts, which is attributable to the services
rendered. While dismissing the petition, the Apex Court made
the following observations in para 11.
11. There is one further difficulty in the way of the
Petitioner. This Court has, in the case of Rainbow Colour
Lab. & Anr v. State of M.P. & Ors reported in (2000) 2 SCC
385, held that contracts of the type entered into by persons
like the Petitioner are nothing else but service contracts
pure and simple. It is held that in such contracts there is no
element of sale of goods. This Judgment is binding on this
Court. In view of this Judgment, the question of directing
the Respondent to bifurcate the receipts into an element of
goods and the element of service cannot and does not arise.
10
Service Tax appeal No.26073 of 2013
We see no substance in the contention that facts in Rainbow
Colour Labs case were different inasmuch as in that case the
Court was dealing with a case where photographers take
photographs, develop them and then give the photos to the
customer. In our view, the ratio of Rainbow Colour Lab's
case also applies to cases like the present."
8.8 In the Laxmi Colour (P) Ltd. case, the Tribunal relied on
Jidheesh case and held that there is no element of sale of goods
in a service like photography. In fact, while deciding the same, the
Tribunal extracted para 11 of the Jideesh decision.
Thus, it appeared that the entire issue has been finally settled in
view of the decision of the Apex Court in the Jideesh case. But,
that was not to be, in view of further developments overruling the
above decisions.
8.9 The learned Advocates brought to our notice that the Hon'ble
Apex Court, in the Bharat Sanchar Nigam Ltd. & Anr. v. UOI &
Ors.- 2006 (2) S.T.R. 161 (S.C.), has overruled the decisions in
the case of C.K. Jidheesh and Rainbow Colour Lab cases. In order
to appreciate the implications of BSNL decision to the present
appeals, we like to present the following background information:-
8.10 The issue before the Apex Court was the nature of
transaction by which mobile phone connections are enjoyed. In
other words, it was to be decided whether the transaction is a sale
or service or both? Only the States is competent to levy Sales Tax.
As regards Service Tax, the Centre alone is competent in view of
the constitutional provisions. BSNL maintained that the
transaction is purely service and the Union Government supported
that stand. However, the States contended that the transaction
was a deemed sale and Article 366(29A)(d) of the Constitution
read with the charging sections in their various sales tax
enactments and, therefore, they are competent to levy sales tax
on the transactions.
8.11 The Apex Court, in the above said decision, has delved
deep into the legal history of Article 366(29A). The classical
concept of sale was held to apply to the entry in the Legislative
List and three essential components are required to constitute a
transaction of sale. They are (i) an agreement to transfer title; (ii)
supported by consideration; and (iii) an actual transfer of title in
the goods. In the absence of any one of these elements, it was
held that there was no sale. For example, a contract under which
a contractor agreed to set up a building would not be a contract
for sale. It was one contract and there was no separate agreement
for sale of goods justifying the levy of sales tax by the State
Government. Similarly, there was difficulty in levying sales tax on
hire purchase contracts and catering contracts because they were
not considered to be contracts for sale of goods. The decided case-
law in the subject was State of Madras v. Gannon Dunkerly - 1958
11
Service Tax appeal No.26073 of 2013
(9) STC 353 (SC). Various High Court decisions held that the
transactions involving work contracts, hire purchase contracts and
catering contracts would not come within the purview of Sales tax
and, therefore, the State Governments were not in a position to
levy sales tax. In order to solve the problems confronting the
states, the issue of the power of States to levy tax on the sale of
goods was referred to the Law Commission by the Government of
India. The Law Commission suggested three methods. One of the
suggestions was inserting in Article 366 a wide definition of "sale"
so as to include works contracts. The above suggestion of the Law
Commission was accepted by the Government of India.
Consequently, the 46th amendment was enacted. Article 366 was,
therefore, amended by inserting a definition of "tax on the sale or
purchase of goods" in Clause (29A). The same is reproduced
below:
(29A) "tax on the sale or purchase of goods" includes, -
(a) a tax on the transfer, otherwise than in pursuance of
a contract, of property in any goods for cash, deferred
payment or other valuable consideration;
(b) a tax on the transfer of property in goods (whether as
goods or in some other form) involved in the execution of a
works contract;
(c) a tax on the delivery of goods on hire-purchase or any
system of payment by installments;
(d) a tax on the transfer of the right to use any goods for
any purpose (whether or not for a specified period) for cash,
deferred payment or other valuable consideration;
(e) a tax on the supply of goods by any unincorporated
association or body of persons to a member thereof for cash,
deferred payment or other valuable consideration;
(f) a tax on the supply, by way of or as part of any service
or in any other manner whatsoever, of goods, being food or
any other article for human consumption or any drink
(whether or not intoxicating), where such supply or service,
is for cash, deferred payment or other valuable
consideration,
and such transfer, delivery or supply of any goods shall be
deemed to be a sale of those goods by the person making
the transfer, delivery or supply and a purchase of those
goods by the person to whom such transfer, delivery or
supply is made;
We find that Clause (b) covers cases relating to works contract.
The problem created by Gannon Dunkerly decision was overcome
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Service Tax appeal No.26073 of 2013
and, therefore, transfer of property in goods involved in the
execution of the works contract was deemed to be a sale by this
amendment. In para 40, the Apex Court has observed "the
amendment especially allows specific composite contracts viz.
works contract [Clause (b)], hire purchase contracts [Clause (c)],
catering contracts [Clause (e)] by legal fiction to be divisible
contracts where the sale element could be isolated and be
subjected to sales tax."
8.12 Para 44, 45, 46 and 47 are very relevant for the present
case. They are reproduced below:-
"44. In Rainbow Colour Lab. & Anr. v. State of M.P. & Ors.
- (2000) 2 SCC 385, the question involved was whether the
job rendered by the photographer in taking photographs,
developing and printing films would amount to a "work
contract" as contemplated under Article 366(29A)(b) of the
Constitution read with Section 2 (n) of the M.P. General
Sales Tax Act for the purpose of levy of sales tax on the
business turnover of the photographers.
45. The Court answered the questions in the negative
because, according to the Court :-
"Prior to the amendment of Article 366, in view of the
judgment of this Court in State of Madras v. Gannon
Dunkerley & Co. (Madras) Ltd. - (1958) 9 STC 353: AIR
1958 SC 560 the States could not levy sales tax on sale of
goods involved in a works contract because the contract was
indivisible. All that has happened in law after the 46th
Amendment and the judgment of this Court in Builders' case
(1989) 2 SCC 645 is that it is now open to the States to
divide the works contract into two separate contracts by a
legal fiction: (i) contract for sale of goods involved in the
said works contract, and (ii) for supply of labour and service.
This division of contract under the amended law can be
made only if the works contract involved a dominant
intention to transfer the property in goods and not in
contracts where the transfer in property takes place as an
incident of contract of service...... What is pertinent to
ascertain in this connection is what was the dominant
intention of the contract ...... On facts as we have noticed
that the work done by the photographer which as held by
this Court in STO v. B.C. Kame - (1977) 1 SCC 634 is only
in the nature of a service contract not involving any sale of
goods, we are of the opinion that the stand taken by the
respondent State cannot be sustained".
46. This conclusion was doubted in Associated Cement
Companies Ltd. v. Commissioner of Customs - (2001) 4 SCC
593 saying:-
13
Service Tax appeal No.26073 of 2013
"The conclusion arrived at in Rainbow Colour Lab case
[(2000) 2 SCC 385], in our opinion, runs counter to the
express provision contained in Article 366(29-A) as also of
the Constitution Bench decision of this Court in Builders
Assn. of India v. Union of India - (1989) 2 SCC 645".
47. We agree. After the 46th Amendment, the sale
element of those contracts which are covered by the six sub-
clauses of Clause (29A) of Article 366 are separable and may
be subjected to sales tax by the States under Entry 54 of
List II and there is no question of the dominant nature test
applying. Therefore when in 2005, C.K. Jidheesh v. Union of
India - (2005) 8 SCALE 784 held that the aforesaid
observations in Associated Cement (supra) were merely
obiter and that Rainbow Colour Lab (supra) was still good
law, it was not correct. It is necessary to note that
Associated Cement did not say that in all cases of composite
transactions the 46th Amendment would apply.
From the above, it is very clear that the apex Court has overruled
the decisions in Rainbow Color Lab and C.K. Jideesh cases which
were relied on by the Tribunal in the case of Laxmi Color (P) Ltd.
case.
8.13 There is another issue which has been dealt with by the
Supreme Court in the above decision. While dealing with the
issues raised by the petitioners, the Apex Court formulated the
following questions :-
(A) what are "goods" in telecommunication for the purposes of
Article 366 (29A) (d)?
(B) is there any transfer of any right to use any goods by
providing access or telephone connection by the telephone service
provider to a subscriber?
(C) is the nature of the transaction involved in providing
telephone connection a composite contract of service and sale? If
so, is it possible for the States to tax the sale element?
(D) If the providing of a telephone connection involves sale is
such sale an inter state one?
(E) Would the "aspect theory" be applicable to the transaction
enabling the States to levy sales tax on the same transaction in
respect of which the Union Government levies service tax.
In para 85, the questions formulated were answered in the
following manner:
(A) Goods do not include electromagnetic waves or radio
frequencies for the purpose of Article 366(29A)(d). The goods in
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Service Tax appeal No.26073 of 2013
telecommunication are limited to the handsets supplied by the
service provider. As far as the SIM cards are concerned, the issue
is left for determination by the Assessing Authorities.
(B) There may be a transfer of right to use goods as defined in
answer to the previous question by giving a telephone connection.
(C) The nature of the transaction involved in providing the
telephone connection may be a composite contract of service and
sale. It is possible for the State to tax the sale element provided
there is a discernible sale and only to the extent relatable to such
sale.
(D) The issue is left unanswered.
(E) The aspect theory would not apply to enable the value of the
services to be included in the sale of goods or the price of goods
in the value of the service.
Presently, what is of interest to us is the answer to question (E).
What is 'aspect theory?' This has been stated in Federation of
Hotel & Restaurant Association of India v. UOI - 1989 (3) SCC 634
as "Subjects which in one aspect and for one purpose fall within
the power of a particular legislature may in another aspect and for
another purpose fall within another legislative power. They might
be overlapping; but the overlapping must be in law. The same
transaction may involve two or more taxable events in its different
aspects. But the fact that there is overlapping does not detract
from the distinctiveness of the aspects." The Apex Court observed
that the Kerala High court in the Escotel case erred in including
the cost of the service in the value of SIM card by relying on the
aspects doctrine. They had categorically answered that the aspect
theory would rot apply to enable the value of the services to be
included in the sale of goods or the price of goods in the value of
services. The implication of the above decision for the present
case is that in the services relating to photography, if certain
goods and materials are consumed, then the value of those goods
and materials cannot be included in the value of the services for
levy of Service Tax. In the result, the decision of this Tribunal in
the Adlabs case is correct and legal in the light of the Apex Court's
decision in BSNL case. Hence, we allow the appeals with
consequential relief if any. We also observe that the Circular dated
3-3-2006 is not in accordance with the ratio of the decision of the
Apex court in the BSNL case.
4.3. The aforesaid decision of this Tribunal has been upheld by
the Hon'ble Supreme Court by dismissing the Department's Civil Appeal
15
Service Tax appeal No.26073 of 2013
Nos.257-258 and 3599 of 2008. Therefore, the issue stands settled in
favour of the appellant.
5.1. Identical issue has been considered in another judgment in
the case of Jain Brothers (supra) wherein the following order was
passed:-
3. We have carefully considered the submissions from
both the sides. The issue has already been decided by the
Tribunal in the case of Deluxe Color Lab. (P) Ltd. (supra).
In this regard, relevant portions from the said order is
reproduced below :-
"12. It would thus appear that the decision in BSNL
case lays down the law that works contract (and also
catering contract) involves the element of both sale
and service contract and that the service and sale
elements can be split up. That being so, we do not
find any merit in the submission of the Revenue that
the decision in BSNL case cannot be treated as an
authority on the issue of service tax. If the
photography service is a 'works contract', it would
follow that it involves the element of both sale and
service, and the sale portion of the activity or
transaction cannot be included in the taxable value of
service. There cannot be any doubt, in view of sub-
clause (b) of clause (29-A) of Article 366, that
deemed sale of the materials takes place in the
rendering of photography service and, therefore, the
value of the materials cannot be included while
computing the value of the service. 'Sale' and
'Service' cannot stand in the same box. Sale cannot
be treated as service and vice versa.
...............
16. The pronouncement of law by the Supreme Court is binding on all Courts and authorities under Article 141 of the Constitution of India. Any decision of the High Court or the Tribunal or even the Supreme Court of lesser Bench strength has to be understood, read down (if necessary) and applied in the light of the binding precedents of the Supreme Court. As observed above, the dispute involved in these appeals is covered by the decision in BSNL case and, 16 Service Tax appeal No.26073 of 2013 therefore, it is not necessary to make comments on the various decisions cited by the parties, referred to above. We are of the view that in the light of the law laid down by the Supreme Court in BSNL case, the matter has to be reconsidered de novo by the authorities below.
17. One issue which we may deal with relates to limitation. According to the appellant, the impugned demands have been confirmed invoking the extended period of limitation, but as the appellants did not commit any fraudulent act nor suppressed any information from the Department much less with intention to evade the service tax, the non-payment, if any, by reason of non-inclusion of the value of the sale portion of the contract, that is, the non-disclosure of the gross total amount including the value of the materials, was on account of bona fide belief that service tax liability relates to the service part of the contract which has already been discharged by the appellants as per Notification No. 12/2003-S.T. The case of the Revenue, on the point of limitation, on the other hand, is that the non-inclusion of the value of photography materials in the value of the taxable service was deliberate with intent to evade service tax. In view of our conclusion on the main dispute as to inclusion of the value of materials in the total value of taxable service in favour of the appellants, it is clear that non-inclusion of value of materials being in accordance with law, the extended period of limitation cannot be invoked, and the question of limitation too has to be reconsidered while considering the appellants' case."
4. In view of the above, we allow the appeals on merit and hold that the portion of value relating to sale is not to be included for levy of service tax. The question of applying extended period of limitation and imposition of penalties does not arise. As the authorities below have gone on the understanding that the entire value of both service and sale has to be taxed and have not gone into the correctness of the quantum of abatement towards value of goods sold, we feel that it would be appropriate to remand the matter to the original authority to the limited purpose of determining the valuation in terms of the above decision and consequent demand of differential tax, if any, as per the said decision.
5. Appeals are disposed of by way of remand as indicated above.
17Service Tax appeal No.26073 of 2013 5.2. The aforesaid decision was also upheld by the Hon'ble Supreme Court by dismissing the Revenue's Civil Appeal No.4825-4826 of 2009 and C.A. Nos. 1340-1342 of 2010.
6. In view of the above settled legal position, we are of the considered view that the issue is no longer res integra and has attained finality in favour of the appellant. Accordingly, we set aside the impugned order and allow the appeal.
(Order pronounced in open court on 29/03/2022) (RAMESH NAIR) JUDICIAL MEMBER (P. ANJANI KUMAR) TECHNICAL MEMBER Raja...